Mortgage fraud takes many forms, but people who commit mortgage fraud are often guilty of violating both state and federal laws. Penalties for mortgage fraud range from fines to prison sentences. The severity of the fraud dictates the penalty. Companies engaged in widespread fraud activities across state lines are usually investigated at the federal level, while borrowers who misrepresent information during the loan process may face state or federal charges.
Borrowers Committing Fraud
Borrowers commit mortgage fraud by providing lenders with false or misleading information about their identity, financial assets, employment status and creditworthiness. People normally commit fraud in order to qualify for loans that they would not qualify for under normal circumstances. Sophisticated fraudsters sometimes apply for simultaneous loans from different lenders that are tied to different properties. Lenders approve the loans based on the borrower's current debt levels but have no idea the borrower has secretly arranged to take on multiple loans from other lenders at the same time. In these cases, the borrower usually takes cash-out refinance loans and then disappears with all of the loan proceeds.
Other Types Of Fraud
Lenders and real estate agents are paid commissions, and people in both of these industries have an incentive to get as many mortgages approved as possible. Some lenders falsify documents to get loans approved, while some real estate agents work with corrupt appraisers to inflate home appraisal prices to generate larger commissions. In other instances, real estate agents representing the seller and buyer collude to drive up sale prices. Another type of fraud involves people masquerading as mortgage brokers and charging fees to people who think they are paying upfront loan costs.
The Federal Bureau of Investigation, in conjunction with other federal agencies such as the Financial Crimes Enforcement Network and local law enforcement, investigates cases of mortgage fraud. The federal government can seize the property of people who are found guilty of committing mortgage fraud. The government can also compel fraudsters to pay damages to other people or companies that suffered financial losses as a result of the fraud. The most serious offenders can receive federal prison sentences lasting up to 30 years and fines of up to £0.6 million.
The penalties for mortgage fraud vary from state to state but typically the court only has to prove that a defendant attempted to commit fraud rather than prove that the fraud caused harm or financial loss to another. Generally, states treat mortgage fraud as a felony with the most serious cases being class A felonies and less serious offences are classified as B or C felonies. In the state of Kentucky, for example, local courts can impose fines of between £650 and £3,250 for mortgage fraud, but the court can also seize property obtained directly on indirectly as a result of the fraud.
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- Federal Bureau of Investigation: 2009 Financial Crimes Report; 2009
- Freddie Mac: Avoiding Mortgage Fraud
- State of Kentucky: Kentucky Residential Mortgage Fraud Act; 2006
- U.S. Department of Housing and Urban Development: Don't Be A Victim Of Loan Fraud
- Federal Bureau of Investigation: Mortgage Fraud is Investigated by the FBI
- Kentucky Legislature: HB 106